Its Autumn Statement day today, giving the new Chancellor his first chance to put his mark on the post-Brexit economy. Many landlords have bad memories of Autumn Statements and Budgets as it was the 2015 Budget at which then-Chancellor George Osborne revealed his plans to restrict tax relief on landlords’ finance costs and the 2015 Autumn Statement that the additional stamp duty rate was sprung.
Unfortunately, despite constant lobbying by the NLA (as well as a plethora of other housing related bodies) the current Chancellor, Philip Hammond has not taken this golden opportunity to avert the impending crisis of the Tenant Tax.
Instead he dropped another bombshell.
Letting Fees No More!
To park the Tory tanks squarely on the lawns of Labour and the Lib Dems, the Chancellor has decided to take action on the fees letting agents charge to prospective tenants – by banning them.
Light on complete detail, and no sign of any thought through policy, the Government will instead open a consultation on the issue. However, they have made their intention clear – letting fees will be a thing of the past…more or less.
In the past the NLA has been critical of excessive fees but believes there are legitimate reasons for some costs to be met by prospective tenants. For example, an applicant contribution towards their referencing encourages full disclosure, i.e applicants with a poor credit history are less likely to lie about it and risk failing if they have contributed financially.
These fees also prevent applicants from gaming the market by agreeing to let a number of properties while they make their mind up or negotiate. If they have to contribute to vetting, or put down a holding deposit, this becomes uneconomical.
We have also openly criticised the practice of ‘double-charging’, as many landlords resent their tenants being charged for a service they have already paid for – or paying for a service the tenant has already paid for.
All fees should be justified and transparent. It seems odd that this announcement comes so soon after the transparency regulations into force (and before they have been reviewed as previously promised).
It also seems to have been an awfully quick change of heart from the new Government:
Housing Minister Gavin Barwell in September said a ban was a “bad idea – landlords would pass cost to tenants via rent. We’re looking at other ways to cut upfront costs and raise standards.”
Local Government Minister Marcus Jones earlier this year said that “banning or capping fees would not make renting any cheaper for tenants – tenants would still end up paying, but through higher rents.”
Theresa May herself has previously voted against restrictions on letting fees too.
Should Landlords Care?
Yes, no, maybe. It really depends on the letting agent you use (as some already don’t charge tenants fees), or if you even use an agent at all. Our latest member survey showed 57% of landlords use a letting agent to some degree.
A ban on letting fees, depending on the finer details of the final policy, could deliver benefits to landlords as 43% of landlords don’t use any of their services.
Fees being set too high can act as a barrier to ‘good’ tenants, so a ban on fees could allow landlords to find tenants quicker and easier as they would not have to have a sum of money saved up to move.
On the flip side though, a ban would not eliminate legitimate costs, or agents’ desire for a profit margin. Landlords may face increased fees as a result. These increased costs may lead to landlords needing to increase rents to cover them (or accept less profit).
This may be seen by some as an acceptable consequence of stopping tenants having to have a sum of money just to move, but it needs to be taken in the context of other changes being made.
Obviously the big one is the incoming restrictions to mortgage interest relief, but on top of that will be minimum energy efficiency standards, electrical safety checks, immigration checks, and the ever-spreading discretionary licensing.
All of these put upwards pressure on rent, at the same time that their proponents (who would prefer to go further still) decry the rising rents!
Our Position Going Forward
The Chancellor made clear that the Government will look to ban letting fees. While the NLA may not view it as the most effective way forward, we will of course work constructively to ensure that whatever changes are imposed on the sector are as fair and undamaging to landlords as possible.
One compromise could be that letting fees are banned, except for certain ones such as credit and reference check fees. This approach has just been adopted by the Lib Dem Renters’ Right Bill that has received cross-party support and is currently making its way through the House of Lords.
More Autumn Statement News
There were also other announcements in the Autumn Statement that could impact on the PRS, such as:
- An increase in Insurance Premium Tax from 10% to 12% next June
- A commitment to maintain the plan to cut corporation tax to 17% by 2020
- A possible review of incorporation, as the Office of Budget Responsibility highlighted a £3bn cost to the Treasury from higher rates of incorporation…